Upbeat real interest rate prods Filipinos to save

Filipino consumers will continue to save in anticipation of the proverbial rainy day as the country’s real interest rate remains positive, the Bangko Sentral ng Pilipinas (BSP) said this weekend.

But people in other countries — like the US, UK, Singapore, South Korea, and Thailand — do not have the compulsion to save because their real interest rates have gone negative, according to the central bank.

Real interest rate is defined as the policy rate of central banks minus the inflation rate.

Since July 2009, the policy-setting Monetary Board has placed the overnight borrowing rate at 4 percent. National Statistics Office records, meanwhile, show that the country’s inflation reached 3.5 percent in last month.

BSP Deputy Gov. Diwa Guinigundo told reporters that the Philippines is “enjoying” a positive real interest rate of 0.50 percent.

Other countries that were blessed with positive real interest rates included: Taiwan (0.38 percent), Malaysia (0.75 percent), and New Zealand (1.5 percent).

On the other hand, the Euro region, India, Australia, Canada, Hong Kong, and Indonesia were the other countries that posted negative real interest rates.

According to Guinigundo, the real lending rate in the country is “just right” at 2.9 percent and “compares well” with real lending rates in the region — where the highest (Indonesia’s) averages 5.4 percent and the lowest (Taiwan’s) is only 1.4 percent.

This was based on nominal lending rate of 6.4 percent for prime Filipino borrowers and inflation rate of 3.5 percent in January, Guinigundo explained.

Inflation issues

Tim Condon, head of financial markets at ING Bank in Singapore, said in an interview with reporters that the Philippine inflation may “pick up a little bit over the near term but not too much.”

He likewise brushed aside some market commentaries that the Bangko Sentral has been tardy in meeting the challenge of rising inflation exported into the region from developed markets.

“There is no real wolf inflation in the door and this behind-the-curve tale is way overdone,” Condon said.

The BSP’s handling of inflation issues also drew comments from the Institute of International Finance (IIF): “The central bank diverged from its neighbors by refraining from raising policy rates as the recovery has taken hold… [T]he maintenance of positive real interest rates through the crisis diminishes the urgency of returning to post-crisis normality.”

IIF also said the positive real interest rate has allowed peso borrowers to obtain loans with interest rates that foster borrowing and help support economic growth, which is expected to average between 7 and 8 percent this year. — JE, GMA News